Innis & Gunn boss steps back to pull in the profits

Innis & Gunn’s Dougal Sharp, who says he has whisky to thank for his firm’s
success, wants to change his role after ten years running the business. How
can he get “back to basics” without putting the company’s growth at risk?

Dougal Sharp with a glass of Innis & Gunn’s oak-aged beer in the Indigo Yard bar in Edinburgh.

Abandoning your career plans in a moment of whisky-fuelled inspiration doesn’t sound like the wisest of moves, but Dougal Sharp credits an “accidental” encounter with the spirit as the basis for his £8.5m business, Innis & Gunn.

A Scottish aversion to seeing perfectly good booze poured down the drain hasn’t done any harm either, he admits.

A decade ago, Sharp was preparing to swap his role as a production manager of his family’s Edinburgh brewery for studying towards an MBA.

Glenfiddich-maker William Grant & Sons’ request for help with its idea for an ale-flavoured whisky rescued him from the corporate classroom.

Sharp and his colleagues proposed brewing a new beer which would be put into oak barrels for 30 days. The ale would then be removed and replaced with mature whisky, resulting in a spirit with a beer flavour. It worked a treat, Sharp says, but an unfortunate by-product of the process was seeing “thousands of barrels” of beer going to waste.

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Or so he assumed: in fact, some of the distillery workers were drinking the redundant brew, and their rave reviews about its taste reached their boss.

“The distillery manager called me and said, 'You’re not going to believe this. The beer we’ve been throwing away is delicious.”

William Grant & Sons’ offer of a joint venture deal in 2002 to establish a business on the basis of the accidental ale – effectively using a reversal of the process that produced the whisky – understandably trumped the prospect of paying through the nose to spend hours mired in business theory.

“I thought about it for a microsecond and abandoned all thoughts of the MBA – here was a vocational project instead.”

The support of the famous distiller gave Sharp the kind of infrastructure that would be the envy of a conventional start-up: “It put in place structures we might not have sought or been able to afford in those early years. It gave us a big company discipline and I was able to soak up all the experience around me.”

Introductions to distributors also helped: Innis & Gunn’s beer – which matures for 77 days in oak barrels previously used for bourbon, producing “toffee, vanilla and oak” flavours – quickly gained a following abroad in counties such as Canada and Sweden.

“I had to do the work – getting the product listed, working out local market requirements – but their ability to open doors was very important,” Sharp says.

Despite the backing of William Grant & Sons, his approach to building the company’s name in Canada was surprisingly elementary at times: get on a plane, hire a car and put some beer in the boot.

“It was as simple as stopping in liquor stores and saying, do you want to take some of this? The owners are very conscious of the risk of taking stock they can’t shift but the fact that we’d made a commitment to getting out there gave them confidence. They were blown away that the founder had come that far so a lot took the beer.”

William Grant and Sons sold their share of the venture to Sharp for a “seven figure sum” in 2008, with the purchase financed with bank debt and a loan from his father. A decent return for the spirits firm’s initial £100 investment but the company’s subsequent performance has left Sharp confident he didn’t overpay: the acquisition debt was paid off in 14 months.

Innis & Gunn’s £8.5m turnover last year came from 11 markets, of which Canada and the US are the largest.

“It’s the result of a lucky accident that we’ve worked very hard to turn into a commercial proposition,” he says.

In the US, Sharp spent £1m setting up a separate business to act as importer and marketer. The company imports to itself, then sells on to distributors, avoiding a cash-flow crunch: “Typically an importer pays you in 120 days. Distributors pay you in 30. If you’ve got any serious desire to build a big business in the US, you don’t want your cash tied up for four months.”

The company is doubling its UK staff from 15 to 30 this year, with sales projected to reach £10.5m, and Sharp wants to change his role. Time to step back and take a more strategic role? No, time to “get back to basics”, he says.

“Having the founder and the face of the company out meeting people like I used to in Canada is very valuable for the company. It was a big part of our success. I’m trying to refocus so I can do more of that stuff again.”

To allow him to step back from his hands-on role, he says the enlarged team is more about making sure “people stick to their day jobs” than developing new markets.

“We’re investing £1m in staff. With the exception of one role, that’s about better-servicing our existing consumers, retailers and distributors, in that order, not a racy programme to add 15 markets.”

With 80pc of Innis & Gunn’s sales coming from overseas – up from 70pc in 2011 – the UK could be one of the regions worthy of attention.

“We want to do more in the UK – it’s a good market,” Sharp says, adding that the current fashion for microbreweries and craft beers is proof that “consumers are more willing to try new beers”. Sales of lager have dropped by 11pc since 2004, as a drink once associated with continental sophistication has slowly become synonymous with punch-ups in market towns.

However, the 39 year-old suspects it might take minimum pricing to turn the tide at home for his business, which makes the majority of its sales in supermarkets and off licenses.

In overseas markets, Innis & Gunn’s relatively high price is seen as a mark of quality, he says. In the UK, it often provokes an unwelcome comparison to supermarket deals.

“If you’re shopping for beer, it’s difficult to walk past three cases of lager for £25 – if that’s what you’re spending on beer, what chance do we have?

“I think we’re going to get minimum pricing. It will make us more like the US, Canada and Sweden in terms of product choice.

“It will take a while to get there but beer will be more about how much you enjoy it rather than how big a discount you can get. I think we’re on the verge of a seismic change.”

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